Does Ethereum Have A Maximum Supply? Is It Infinite?
In the world of cryptocurrency, traders and investors often talk about the most popular investments. Bitcoin is the coin people generally reference when they discuss digital assets. Ethereum is the second name that comes up in a conversation, but it sure has plenty to offer. The approval of a spot Bitcoin ETF has sparked speculation within the cryptocurrency community on whether the world’s second-largest token could see a similar outcome. At any rate, Ethereum deserves a place in your investment portfolio because it’s a pioneering force in the realm of DeFi; it makes creating smart contracts and dApps a piece of cake.
There Are No Strict Limitations on Ethereum’s Maximum Supply
According to Binance, Bitcoin has a set limit of 21 million coins, enforced via a combination of mining and halvings. By contrast, Ethereum has no maximum supply, so validators can create and extract the cryptocurrency indefinitely. Vitalik Buterin developed a network with infinite coins, allowing for greater flexibility and scalability. Ethereum is an inflationary cryptocurrency, which means that it gradually expands the overall number of tokens, closely mirroring the conventional fiat currency system. What happens is that the number of tokens in circulation outpaces demand, decreasing the overall value. Ethereum’s Merge profoundly altered the digital asset’s dynamics.
Some cryptocurrencies limit the release of their supply or even burn tokens. Token burning is a process by which a given number of coins are permanently removed from the circulating supply. In Ethereum, it can be achieved by sending ETH to inaccessible addresses, which have a known public key but an unknown private key, or using smart contracts to burn tokens. Removing an asset from circulation to adjust availability isn’t actually a new concept. Central banks regulate the amount of money in circulation by adjusting the currency’s purchasing power. During busy periods, Ethereum burns more tokens than it creates, therefore curbing its supply, which is considered bullish for the price.
Under Proof of Stake, The Staking Ratio Is Vital in Determining Security
Ethereum doesn’t use Proof of Work any longer as its consensus mechanism, but Proof of Stake which works by selecting validators based on the number of holdings in the native cryptocurrency. It used a mechanism referred to as “minimal viable issuance” during the Proof of Work era to reduce the balance of the inflation rate to secure the network and incentivize miners. The issuance rate was adjusted via Ethereum Improvement Proposals and community consensus. What about now? Well, circulating supply equilibrium is achieved via the staking ratio, which naturally affects dynamics by altering the opportunity sets. Both the price drift and the staking ratio are functions of platform productivity.
Ethereum Has Been Removed from Circulation in The Last 30 Days
On the Ethereum network, the total supply is, theoretically, inexhaustible, but in practice, there are nuances to take into consideration. Ethereum’s circulating supply currently stands at 120.16 million, slowly but surely reducing the number of tokens in circulation on the blockchain and available for the market to trade following the Merge. When there’s high usage, the fee to transact adjusts higher, making transaction costs rise. Millions of coins have been withdrawn from circulation in the past month, pushing the circulating supply to a new post-merge low as burn rates spike. The decreasing supply could have something to do with the increasing price of Bitcoin.
The Top Ethereum Accounts Aren’t Controlled by Individuals Users
If you take a close look at the supply metrics by account type, you’ll see that the number of active addresses that send and receive ETH on the blockchain is at a current level of 259.10 million, mostly represented by smart contracts and exchanges. The most common address type is the Externally Owned Address (EOA), which is secured by a private key, followed by the Contract Address, which manages the balances of all token holders, such as the total supply and its basic features. Ethereum wallet addresses are generally compatible across different platforms and exchanges. The supply is mostly controlled by early investors and whales, i.e., entities that hold considerable amounts of ETH, since the genesis.
Traders and investors only need a computer or a phone with an Internet connection to use cryptocurrency; there’s no background verification, so it’s faster compared to standard financial institutions. Nevertheless, most things in the cryptoverse are complicated, so investing in Ethereum requires more scrutiny than investing in stocks. Spot Ethereum ETFs offer an opportunity to gain exposure to the digital asset while also providing the advantages of an ETF structure, namely liquidity, transparency, and accessibility. They’re managed by professional investment firms that oversee the technical aspects of investing in Ethereum.
So, Why Is It Crucial to Keep Track of The Circulating Supply of Ethereum?
Ethereum relies on several solutions to enable the expansion and contraction of its supply to accommodate market demand and security requirements. Its dynamic and progressive community has developed multiple hard forks to change the monetary policy, and the Ethereum Foundation has plans to do so again. The circulating supply of Ethereum is an important variable that investors and traders should take into account when analyzing price. The more coins exist, the bigger the demand is for the price to rise and vice versa. The number of tokens in circulation can rise or fall with time as new coins are minted and burnt.
At the end of the day, it all comes down to what you want to accomplish. Ethereum is largely viewed as a legacy coin, which means that it’s a good fit for long-term holding. Buy-and-hold investors keep onto their digital assets for long periods of time -it takes patience and willingness to learn and adapt. HODLing provides more safety, as you’re not exposed to short-term volatility and can avoid the risk of buying high and selling low. Ethereum’s supply has entered a deflationary phase, which could signal an approaching rally. In other words, Ethereum could be a star performer, as opposed to the majority of cryptocurrencies, including Bitcoin.
